In part because the Japanese corporate bond market is no where near as deep and large as its US counterpart, Japanese rating agencies hold far less sway than Moody’s and Standard & Poor’s. Nevertheless, the idea that Japan should write down its vast holdings of Treasuries and support US infrastructure spending (albeit with a few strings attached) is an attention-getting pronouncement, no matter what the source.
In all seriousness, though, I recall some German colleagues complain, in all seriousness, how they did not have good outlets for stimulus (Germany, the export powerhouse of Europe, has been foot-dragging on economic stimulus despite calls from its neighbors and abroad to ramp up spending aggressively). Germany already has good infrastructure, so they don’t need to spend on that. They already have good social safety nets, so extending them might not yield much bang for the buck. And they have met their Kyoto agreement greenhouse gas reduction targets too . When one mentions tax cuts, they shudder as if being asked to engage in unnatural acts. So the idea of sprucing up our bridges and roads might be an easier sell.
Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said…
The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.
The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said….
Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said….
Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.